Participation Incentives, Rebound Effects and the Cost-Effectiveness of Rebates for Water-Efficient Appliances

Rebate programs for retrofitting residential properties with water efficient appliances have become a common conservation policy tool for local municipalities. Engineering estimates of water savings from rebate programs can be systematically biased because they assume all subsidized appliance replacements would not have occurred in the absence of the subsidy and because they fail to account for potential rebound effects. We partner with a water utility in North Carolina to develop a unique database that combines water use data over a three-year period for all households that participated in the utility's high efficiency toilet (HET) rebate program, water use data for a matched sample of neighbors, and a survey of rebate participants. We evaluate whether rebates are a cost- effective means for water utilities to promote water conservation accounting for both selection and rebound effects. Difference-in-differences estimators indicate no evidence of a rebound effect with HET installation. However, we find that water savings attributable to the rebate program are less than one-half the actual savings associated with an HET installation. Costs of saving water through toilet replacements are estimated to be between $5.50 and $11.00 per 1,000 gallons which compares favorably to costs of raw water through purchasing or expansion which are between $7.00-$11.00 per 1,000 gallons